What to Do if You Are Still Late on Your Taxes and You Didn’t File an Extension?

What to Do if You Are Still Late on Your Taxes and You Didn’t File an Extension?

If you are one of the many people who failed not only to file your taxes but also to file an extension, you might be living in a panic about what the consequences will be. The good news is that even if you missed the deadline, there are still ways to make it up and get back on track. If you owe money, ignoring it will not make it go away. It will only make it worse. So follow these steps to smooth things over.

What Happens if You Don’t File Your Taxes or an Extension?

If you missed the deadline to file and didn’t take the steps to file an extension, you might have to pay interest and penalties. If you failed to pay or file an extension, the consequences can be pretty stiff. There are two types of penalties that you are automatically subject to by the IRS. If you fail to file, you are automatically assessed at 5% per month penalty up to a 25% maximum. If you fail to pay the penalties, there is an additional 0.5% per month up to a 25% maximum. If they are both accessed, then the failure to file penalty will be reduced by the failure to pay penalty.

What if You Can’t Afford to Pay What You Owe?

Even if you can’t afford to pay your taxes, you still have to file. When you file an extension, it lets the IRS know that you are not evading them and that you know that you owe taxes. After you file for an extension, it is possible to negotiate with the IRS to make payments that you can afford. You can either ask for another extension or try to work with them to devise a payment plan.

If You File, Do the Penalties Stop Accessing?

The bad news is that although you can try to work with the IRS, the fees do not stop accruing until you pay off what you owe. So, it is a good idea to try to pay off the total as soon as you can. It might be a good idea to start to withdraw from your savings to pay your taxes, especially if the interest you are making is less than what you are accruing from your debt with the IRS. Taking out a payday loan or other high-risk loan with a high interest is probably not a good idea. That will end in digging a bigger debt hole.

What If I Ignore It?

Ignoring it won’t make the situation go away. If you fail to pay your taxes, it could lead to a host of consequences including, in egregious cases, jail time. It is better to tackle it head-on. The longer you go without filing your taxes, or an extension, the more money you will owe in fees and penalties. For help with your overdue taxes or IRS troubles, call Jetro Taxes to get the help you need to get back on track today.

Clarification On Taxes: What To Do If You Receive An IRS Notice

Clarification On Taxes: What To Do If You Receive An IRS Notice

There is nothing that can rattle a business owner’s cage more than seeing an envelope come from the IRS. But, the good news is that it doesn’t always have to spell trouble. If you get a letter from the IRS about your taxes or your payroll taxes, the steps you take to rectify it can make things go a lot smoother, whatever the issue may be. If you get a notice, it is essential to take these six steps to minimize any trouble.

Even though it can be super difficult not to get worried, it is never a good idea to panic when you are notified. In most cases, a letter from the IRS is nothing to worry about. If you panic, it is only going to make the situation more stressful for you.

Typically, when you get a notice, it can be cleared up by just contacting them with a little information that they might be requesting. Make sure to read the notification carefully to fully understand what it is that they are asking from you. This way, you can get all the details and take care of the issue quickly.

To make sure that you are answering correctly, you have to track down all of your tax returns from the previous five to seven years. You want to make sure that if you supply the IRS with the requested information, it is correct and truthful. If it doesn’t match up to what they have on file, that could send up a red flag.

If you aren’t sure what the notice is about or what specifically the IRS is asking for, don’t be afraid to call. If you need clarification, there is a number on the notice where they will be more than happy to go over the letter in detail and explain to you precisely what it means and what you need to do. It is always better to ask for clarification than to guess.

Be sure to make copies of anything that you send to the IRS, even if it is their form that you filled out. Also, if you do call and talk to anyone, make sure to take notes about who you spoke with, when, and what they said. That way, you’ll have a record of the entire situation should there be a problem.

If you are concerned about the issue, don’t have the information you require, or just feel like you are being asked for something mistakenly, then call a Milwaukee tax specialist to help sort through the details. When it comes to dealing with the IRS, it is always best to ensure you are doing things correctly to protect yourself.

If you get a notice from the IRS about your taxes or your payroll taxes, don’t panic. But, do make sure to address it immediately and properly to save yourself potential headaches and penalties. If you need the help of a Milwaukee tax specialist, contact Jetro Tax today!

7 Biggest Legal Loopholes For Attorneys & Law Firms In The New Tax Law

7 Biggest Legal Loopholes For Attorneys & Law Firms In The New Tax Law

We could all stand to pay less in taxes, right? Fortunately, the new tax law has given law firms plenty of opportunities. There are seven major ways to slash your taxes and put more profit in the bank each year. I call them “loopholes” because so few people know about them but all seven are perfectly legal tax strategies provided for in the new tax law.

You can make a few adjustments to how your business is set up or how you handle your expenses and save big at tax time. Whether you’re able to take advantage of one, two, or all seven of these strategies, it’s well worth your time and effort to implement them. Without further ado, here are seven legal tax loopholes for law firms:

1. The August Rule

This loophole allows you to literally pay rent to yourself, tax-free, and we owe it all to golf in the 1970s.

If you’re a golfer, you know the Masters Tournament is held every year in Augusta, Georgia. Like the Superbowl or the Olympics, the Masters draws a lot of visitors who are always looking for lodging nearby. Wealthy home-owners near the course rented their homes during the tournament and lobbied for that income to be tax-free since they weren’t full-time rental homes.

The result? When you rent your personal home for up to 14 days per year, that income is not taxable. This is true even if you rent the home to a business you own.

Next time you need to hold a corporate meeting or a staff off-site, hold it in your home rather than a hotel or another rental. You can claim the rental expense for your business, as long as you document the business use and confirm that it was a reasonable rate (find comparables by getting quotes from hotels or even Airbnb rentals in the area).

Tax-deductible for your business and tax-free for your personal income taxes equals and win/win.

2. Mixing Business and Pleasure

If you’re as busy as most law firm owners, finding time for a vacation is a challenge. Your best bet may be to fit business and vacation time into the same trip.

Thankfully, that can mean a lot of vacation expenses are picked up by your business, completely tax-deductible.

In order to deduct a trip as a business expense, you need to be conducting business the majority of the time. The IRS measures in days, meaning you’d need to spend at least 4 days out of a one week trip mainly on business (business needs to be 25% of your trip if it’s outside of the U.S.). Traveling to and from your destination is considered part of the business trip, so that already gives you two days. Plus, if you’re in meetings or attending
a conference from 9-5, there’s no reason you can’t enjoy some R&R after hours.

Travel expenses for flights, car rentals, or vehicle expenses (you need to leave your tax home to incur business travel expenses) can all be deducted. So can lodging and 50% of meals expenses related to your business transactions.

If you’re bringing the family along on the trip, just make sure your expenses are “necessary and ordinary.” You can deduct the cost of a single room, but not the cost of a family-sized suite, for example. As long as you document, feel free to rent the suite and only deduct the portion that coincides with a single-room rate.

3. Learning the Value of Work has Tax Benefits

Do you want your children to learn the value of a hard-earned dollar and maybe even take in interest in the family business?

The new tax law makes it better than ever to hire your children.

If your firm isn’t incorporated, there are some great perks to hiring your own dependent children. Instead of giving them an allowance or paying them to mow the lawn, why not pay them a reasonable wage to work around the firm? Their income will be exempt from Social Security, Medicare, and federal unemployment tax withholdings. They’ll also be able to shelter a significant amount of that income with their standard deduction since it’s earned income.

On your end, the wage expenses are fully tax-deductible, just as they would be if you hired someone else. Depending on your child’s age, this is a great way to get cleaning and lawn care, light office work, or some computer support at your firm.

4. Get More Mileage out of Your Vehicle Expense

If your firm uses a vehicle at least 50% for business purposes, you can deduct a number of expenses. The big decision is whether you’ll track those expenses one by one (actual expense method) or simply multiply the miles driven by the predetermined rate (standard mileage rate method). The standard rate has always been popular because it’s easier to track, but the Tax Cuts and Jobs Act just made the actual expense method much more appealing.

The actual expense method allows you to include depreciation on your vehicle. Under the newest tax update, the limits on vehicle depreciation were greatly increased and bonus depreciation can be applied to many vehicles. Bonus depreciation allows a business to take additional depreciation expense deduction when a vehicle is first put
into use.

Additionally, if you have a more expensive vehicle with higher than average repair and maintenance costs, the actual expense method is likely going to be your best bet.

5. Shrinking Meals Expense Deductions

Client networking and employee fringe benefits have been a part of professional businesses for years. Recent tax changes have cut back on the deductibility of a lot of these expenses, making it harder to justify those expenses. The changes have also made the details so complicated that even the IRS isn’t quite sure what they mean.

What was once meals and entertainment expense deduction now excludes entertainment. Taking a client or prospect out for lunch or a round of golf used to be deductible expenses. The golf is now off the table. Eating in a setting that includes entertainment (like a dinner theater or club) is also disallowed, although some CPAs
would argue for the deductibility of the eating portion.

Another big change is the deductibility of fringe benefits such as an employee cafeteria. Unless they’re part of an event like an employee Christmas party, these items are now 50% deductible instead of fully deductible as they were before. Don’t worry, the morning coffee and donuts should be considered a “de minimis” expense that’s not big enough to be consequential for tax purposes.

6. The Hidden (Fringe) Benefits of Hiring Your Spouse

If you have a small, family-owned practice, there could be big tax incentives for hiring your spouse. Hiring them on a part-time basis and paying them in the form of fringe benefits can be both a deductible expense for the business and a tax-free source of compensation for your family.

A Section 105 medical reimbursement plan can form most or all of the reasonable compensation paid to your spouse for their work, as long as it is within limits. These contributions are a wages expense for the employer and can be used by the employee to cover out of pocket medical and dental expenses and insurance premiums.

There are a few words of caution on this loophole. In order to be allowed by the IRS, the Section 105 plan needs to be carefully planned out and documented. Make sure the compensation you provide to your spouse isn’t too much or too little and that they are actually performing a necessary job in your firm.

Also, if you have multiple employees in the firm, you need to be careful. Since this is a health care expense reimbursement plan, you can’t discriminate between employees and offer it only to one, even if the one is your spouse and even if it’s their only form of compensation.

7. The Perfect Business Structure for Your Firm

Choosing the ideal business structure for your firm effects both your liability and your tax situation. As a law firm, you’re fully aware of the liability issues but the Tax Cuts and Jobs Act has just had a huge impact on the tax implications of your structure.

Pass-through entities such as S-corps and LLCs may qualify for a 20% deduction on qualified business income. This helps to balance the tax cut given to corporations, but it’s limited in availability. SSTBs (Specified Service Trade or Business) can only take the deduction is income is below $207,500 for individuals and $415,000 for couples. At the higher end of this limit, the deduction starts to phase out.

If your income is higher than the limits, you may want to look into becoming a C-corp. Although C-corporations face double taxation (paying at both the corporate and personal levels) the corporate tax rate has been reduced to a flat 21% across C-corps. Consider the necessary steps and hoops and talk with your tax advisor about which entity would give you the best results.

These 7 tax law loopholes can save you thousands at tax time. You just need to know which ones are a fit for you and how to fit them into your overall tax strategy.

If you don’t have a tax advisor, you’re paying way more than you should be. Click here to book your complimentary strategy session with me.